For-profit

Private, For-profit Solutions to Funding and Delivery

What’s the Issue?

Public or Private? These are loaded words in the healthcare debate. There can be public and private roles in both the funding and delivery of healthcare. What is the best balance for Canadians?

Who pays for health care? Healthcare funding can be public, quasi-public and private. Let’s explore the variations with some examples, understanding that many of these examples are still evolving and may have changed.

Public funding may refer to support from various levels of government. In Canada, about 70% of health care expenditures come from public sources. The Canada Health Act dictates that medically necessary hospital care and physicians’ services must be publicly insured in order for provinces to receive federal transfer payments. But the extent to which provinces go beyond this minimum can vary among provinces, because healthcare is under provincial jurisdiction. For example, Ontario has much more public coverage for homecare than does New Brunswick.

Quasi-public funding sources are legally private, but highly regulated by government and expected to act in the public interest. Quasi-public funding examples are Canadian workers’ compensation plans and European sickness funds. Note there are a number of different models used in European countries, all of which result in universal, or almost universal, coverage of the population.

Private funding can describe out-of-pocket payments, and services paid for through private insurance. In Canada, most dental care, vision care, and a considerable proportion of outpatient drug costs are funded privately. Private insurance companies have a lot of variability in what they will and will not cover, but the Organization for Economic Co-Operation and Development (OECD) identifies three basic models:

Private insurance can be a substitute for public coverage for all or part of the population. For example, in the US, certain segments of the population qualify for publicly funded insurance, but the rest do not, so out-of-pocket payments or private insurance are the only alternatives for those people.

Private insurance (often with deductibles and co-pays) may cover services not included within the basket of publicly-insured services. This is how most dental plans and prescription drug plans work in Canada.

Private insurance can also allow access to private providers in systems where parallel models exist. For example, in England patients with private insurance can choose to go to a private hospital and jump the queue. Most analysts have found that these private alternatives are more likely to apply to elective surgeries than to medically necessary care.

At times, it can be a complicated matter to separate what precisely falls under public and private spending domains in Canada. The majority of publicly-provided funds go towards physician and hospital services for necessary medical services, as mandated by the Canada Health Act. Pharmaceuticals administered to inpatients (those staying in a hospital bed) are paid for by the public. While there are other smaller costs also included in the public total, most of these vary by province. For example, workers’ compensation boards qualify as publicly-provided care, as does the Quebec Drug Insurance Fund, a universal drug insurance plan. In addition, governments often subsidize many health services which fall under private care such as pharmaceuticals, nursing homes and dental care, although the eligibility and extent of these subsidies vary widely by province. Finally, there are a number of public health insurance programs offered to select groups of people, such as First Nations, refugees, veterans, members of the Canadian forces and RCMP, and inmates.

Private spending applies to spending on health care that aren’t covered by the government. The most common forms of this are eye and dental care, outpatient pharmaceuticals, and physiotherapy (although as mentioned above, a portion of these costs are sometimes paid for publicly). Long-term care is more difficult to pinpoint, as nursing homes and other institutions are subsidized by the government for their services, but private fees (usually income-dependent) are also applied. Furthermore, several tangential health services must be paid for privately, such as private rooms in hospitals acupuncture, and services provided by audiologists, podiatrists and several other practitioners. Most elements of private spending are funded through out-of-pocket payments by patients or private insurance, supported through regular premiums, deductibles and copayments.

Who delivers health care? Healthcare delivery can also be public or private. England’s National Health Service was formed around public hospitals and some military clinics; their employees worked for the government. In contrast, it might surprise many Canadians to hear that almost all Canadian healthcare delivery is private. Even many hospitals that Canadians call public are in fact private, not-for-profit organizations, which happen to get much of their funding from the government. Canadian doctors are also private providers, not public servants. The mix up occurs because although the delivery is private, almost all services delivered in hospitals or by physicians are publicly financed.

Private delivery can be further divided into:

For-profit, corporate services, which have fiduciary responsibilities to their shareholders.

For-profit, small-business services, such as private offices and clinics run by physicians and physiotherapists. These are sometimes called “not-only-for-profit,”

Not-for-profit organizations, which describe most Canadian hospitals as well as many agencies offering community services. In many provinces, hospitals have been subsumed into regional health authorities, which are still legally private, but are sufficiently heavily regulated to fit into the quasi-public category.

Comparing these different types of private services with public services is complicated. In fact, attempts at comparing costs or outcomes of private versus public delivery models are like comparing apples to oranges. One reason is because they usually do not offer the same healthcare services. For example, in those jurisdictions where multiple models compete, analysts have found that for-profit, corporate providers will tend to serve potentially profitable services (e.g. elective laser eye surgeries) and client groups (patients with no complicating conditions), and leave other services and sicker patients to public or not-for-profit providers. This is often referred to as “cream skimming.”

Another complicating factor is that healthcare differs from many consumer goods because it is based on need rather than demand. Few would worry about buying a pair of shoes that aren’t needed; however, few would wish to undergo cancer chemotherapy if there was no cancer to treat, even if the treatment was “free”.

The evidence suggests that under most circumstances corporate for-profit healthcare produces few benefits to the patient or to the healthcare system. For-profit health care can offer advantages if there are potential savings from strong economies of scale or better management. However, for-profit providers may improve their bottom lines through the use of more contentious measures including

Freedom from union agreements

Evading cost controls placed on the public system (e.g., the price paid for physician services)

Permitting dubious practices including fraud (billing for services not delivered) or pushing treatments which are not medically necessary.

In theory, these problems can be minimized if performance is monitored, but monitoring adds additional costs. Also, monitoring may be difficult where outcomes are not easy to measure. If performance cannot easily be monitored, not-for-profit or not-only-for-profit delivery is more likely to provide less expensive, high quality outcomes than is corporate for-profit delivery.

Private Sector Role in the Financing of Healthcare

Swedish council becomes first to limit private profits in healthcare. Härnösand, a sleepy post-industrial town 400km north of Stockholm, could go down as where the counter-revolution began. This month, the regional council ordered its officials to find ways to limit the profits private companies can reap from running publicly-funded health services.

For a dated (1997) but still unfortunately relevant piece on “who’s selling the market, and why?” see this piece by Robert Evans (UBC) which was commissioned by the editors, Journal of Public Health Medicine, Oxford University Press.

Myth: Activity-based funding leads to for-profit hospital care, from CFHI. Humans respond fairly predictably to economic incentives. Like mice in a maze, if someone moves the cheddar, we’ll probably change course. So by putting a nickel here and removing a dime there, those that determine our income can tweak our behaviours to produce specific results. At the same time, we’re not always at the whim of the almighty dollar. The resourceful among us often find ways of using the payment scheme to their advantage.

Study in the New England Journal of Medicine recommends State-Based Single-Payer Healthcare for Vermont that could save money and fully fund universal coverage thus reducing healthcare costs for most businesses and households. The authors note even their proposed plan “will never be as efficient as Taiwan’s or Canada’s.”

Canadian physicians are not public servants. Canadian hospitals are not owned by government. Many types of private payment are allowed for some healthcare services. So where does this myth about Canada having a “communist-style healthcare system” come from? Canadian Health Services Research Foundation reviews this misinformed stereotype.

Private Sector Role in the Delivery of Care

What is the appropriate role for private delivery within Canada’s healthcare system? The debate has been characterized by more heat than light, with advocates talking past one another and using similar terms to mean very different things.

Physicians in Canada are not government employees. Rather, they have their own private practices with clinical autonomy. The government does not tell physicians what to do, but the government does have restrictions on how they can bill. For example, they cannot charge beyond what the provincial plan pays for those services agreed to be “medically necessary.” Physicians are permitted to opt out of the government run system completely and bill privately, but very few do. It is against the Canada Health law for physicians to see patients in their public office and funnel them to their private practice.

One recent study examined how three different provincial health care systems developed differently over time. Differences in the delivery and quality of health care between the systems can be traced back to differences in the fiscal settings and the extent of both private and for-profit health care adopted by the provinces.

The Canadian Health Services Research Foundation 2004 Mythbuster focused on the Myth: For-profit ownership of facilities would lead to a more efficient healthcare system.
Synopsis: While enthusiasts argue that for-profit facilities can provide medical services more efficiently and with a lower price tag, the vast majority of studies show the exact opposite.

An article published in the Canadian Medical Association Journal asks why private, for profit delivery of care is more expensive. Suggested explanations: For-profit hospitals must make money to satisfy investors, they have higher administrative costs, and they pay higher executive bonuses. The article includes a review of 8 studies comparing costs at for-profit and not for profit hospitals.

Another piece in the Canadian Medical Association Journal concludes that private for-profit ownership results in a higher risk of death for patients. Multiple studies comparing private for-profit hospitals and private not-for-profit hospitals show that quality of care is lower in private for-profit hospitals. (Note: Canadian hospitals are private not-for-profit.)

Normally provincial medical association elections are not national news. The one vote difference between first and second place in the race for president of the Doctors of BC ­– later declared a tie after a recount – might be enough to grab people’s attention.

A long-running dispute between Dr. Brian Day, the co-owner of Cambie Surgeries Corporation and the British Columbia government may finally be resolved in the BC Supreme Court this year — and the ruling could transform the Canadian health system from coast to coast.